In the previous article we talked about the differences between flipping homes and keeping them as rentals. The first strategy makes money right away. The other serves as a long-term savings vehicle. Which strategy is right for you depends on many factors. Among them are your financial goals, your current financial situation, and how much time you can afford to spend on the project.
Let’s start with time. Flipping homes can be a time-consuming business. Even if you are not doing any physical work yourself, you’ll be investing hours each week supervising the crew and managing your project. Every major decision and many details will rest on your shoulders. So ask yourself whether you can afford to take time from your other career and your family. If your current home and professional life allows such flexibility, you’re the right candidate for the fix-and-flip business.
Next, let’s tackle your financial goals. Of course, all of us would like to make more money – both in the short and in the long term, but let’s dig deeper. Are you considering real estate investing because you need to supplement your current income? Would you like to lay the foundation for a possible career alternative? Are you looking to boost your current levels of savings? Or is your goal to effectively diversify the savings portfolio you already have? In other words, will you be leveraging real estate investing to build your nest egg or to preserve and grow it?
To a large extent, the answer depends on your current financial situation. Your savings, your current income and your job security all play a role in whether you are better suited to flipping homes or holding them for the long term.
Being a landlord builds your long-term wealth, but it takes years to do so. In the DC area, you are lucky if the monthly rent from your tenants covers your mortgage payment, your expenses of maintaining the property and your vacancy rate. The appreciation in the market value of your property will eventually increase your net worth. However, it won’t be funds you can easily access for emergencies or other investment opportunities. When you have a rental, your money is slowly but steadily building up your retirement. However, it’s also “tied up”. To meet life’s emergencies and pursue other business opportunities make sure you have plenty of other liquid assets or –
better yet – cash in the bank.
There is also another variable that must influence your decision of whether to flip a property or to keep it as a rental. It’s the property itself. While you must consider all the factors we’ve discussed above, to be an entrepreneur requires flexibility of thinking. This is what it means “to keep your eyes peeled” for an opportunity. And such opportunities might come in forms and shapes other than expected. To learn more how the subject the property itself can affect the decision on whether to flip the property or rent it read our next article.